Ongoing financial market turmoil and growing compliance efforts are having a profound impact on cash management needs and putting already strained banks under pressure. Deutsche Bank’s global head of sales, cash management financial institutions, John Ball, and global head of FI product – cash management for financial institutions, Marcus Sehr, discuss how local and global bank partnerships can help banks manage transactions in difficult times. 

Growing regulatory demands – an inevitable outcome of the 2008 financial crisis – are revolutionising the cash management business and the transaction banking industry. In many cases, compliance requires notable investment (and ongoing maintenance costs) on the part of the banks, while curtailing what were once reliable revenue streams resulting from payments processing. As a result, transaction banking – including cash management – is more than ever becoming a scale-based business, profitable only for dedicated providers with the means to keep up with regulatory and industry demands.

This does not mean, however, that local and regional institutions can simply abandon payments processing and clearing services. The execution of cross-border payments, foreign exchange and receivables services is a necessary core function of banks despite rising costs and complexity concerns. Their corporate relationships are likely to become more dependent on these services as the ongoing market turbulence, liquidity constraints and shifting trade patterns underscore the client’s need for compliant, efficient and effective cash management services.

New requirements

In response to today’s challenges, clients are looking for solutions rather than products. While the cash management arena was once largely dominated by standard products, many companies are now looking for customised solutions that will work with their existing infrastructure to increase automation and efficiency. While this unquestionably necessitates technical sophistication on the banks’ part, it also requires agility, as cash management needs depend largely on the demands of their local markets.

As important as individual market requirements are, bank technology platforms must also look at cash management and payments processing needs from a global perspective. This is the case for both straight-through-processing (STP) enhancements and multi-currency capabilities. STP enhancements are crucial to ensure scale processing and are required to process peak volumes.

Multi-currency requirements are largely market-dependent, but the sharp uptick in intra-Asian trade and the rise of China as a major world trade player means there is increasing focus on the Chinese renminbi as an international reserve currency. As a result, there is a growing corporate requirement for access to renminbi clearing and processing services – both in Asia and across the globe. 

Regional perspectives

Trade flows involving Asia – between Asia and Europe, Asia and Latin America, and also intra-Asia – are certainly a key area of focus for banks and corporates alike. While renminbi transaction volumes are growing – particularly with respect to intra-Asia trade – Asian trade beyond the continent is still largely dominated in US dollars, at least for the time being. This means that banks seeking to capitalise on these flows need up-to-date dollar clearing services and the ability to accelerate payments in order to coincide with the peak hours of the Asian market.

Trade between Europe and Asia is still conducted primarily in euros, but banks should be investing in – or seeking to acquire through partnership – renminbi clearing and processing capabilities. As corporates are now beginning to receive invoices and payments in renminbi, such capabilities are vital – especially as current transaction volumes are expected to rise significantly.

This development presents a number of significant challenges in terms of both cost and regulation and strengthens the argument that bank partnerships are key to the future development of transaction banking and cash management services.

Regulation is, arguably, the principal factor in the shift towards bank partnerships. The regulatory environment in China and the rest of Asia is dynamic, which means that banks without sound local knowledge – either in the form of a physical presence or a local partner – may struggle to keep abreast of the latest developments.

Keeping pace

The fast pace of regulatory change in Asia is one of the main differences between the Asian and European markets and partially explains why some European banks have struggled to keep up with industry developments in Asia. Recent years have seen trade flows within Europe shift to trade between Europe and Asia.  However, many European banks’ cash management offerings have largely failed to reflect this change and are unlikely to do so in the foreseeable future.

European banks have had plenty to contend with from a regulatory perspective, which has caused them to concentrate almost exclusively on the intra-European market. While regional initiatives such as the Payments Services Directive and Single Euro Payments Area (SEPA) have come as no surprise, they have led to spiralling compliance costs and a reduction in revenue streams.

The need to reconcile this dilemma and meet the February 2014 end-date for migration to SEPA credit transfers and direct debits has shifted the focus away from expanding networks into Asia and improving renminbi expertise and capabilities. The combination of regulatory pressures and the need to ‘act local and think global’ is further fuelling partnership and collaboration between global banks and local and regional players – an important trend that is irrevocably changing the face of the transaction banking and cash management business.

Customer service

The importance of local customer service grows in line with international trade flows. Given that there are a number of regional differences in the processing of international transactions, it is critical to have a service team readily available when it comes to exceptions handling.

In many cases effective exceptions handling requires local language, local market knowledge and presence in the local time zone. This is another example of the opportunity for collaboration – local and regional banks can expand their reach by using a global bank as their service provider. 

Bank consolidation comes as a direct result of the unprecedented pressures that the transaction banking and cash management industry face. Region-specific requirements combined with broader initiatives (such as the Basel III accord) that will have knock-on effects on cash management practices are causing a shift from a bank-led ‘product push’ mentality to an end-client-centric focus.

This in turn signals a move from standardised products to tailored solutions, and the resources required to achieve this – both fiscally and in terms of expert staff – mean that innovation is now almost exclusively the realm of specialist global providers.

Local and regional banks still have an important place in this evolving sector. A local provider’s strength is the unrivalled knowledge they have of their home markets and clients. It makes sense, therefore, for these providers to leverage their market understanding with the capability and network strength of their global counterparts.

Catering to new trends

As a partner bank to local and regional banks worldwide, Deutsche Bank continues to invest in its own technology and network capabilities for the benefit of financial institutions and their corporate clients. Looking at Europe, Deutsche Bank began to deploy its scalable SEPA engine five years ago, which means that the bank has the technology and practical experience not only in core processing but also in assisting clients with migration preparations. With this approach firmly in place, the bank goes beyond core functionality and helps clients to manage risk.

Deutsche Bank has also worked to bolster its dollar clearing services, as well as provide our partners with a harmonised offering across the euro and dollar product suites to allow for more efficient and transparent processing. In addition to efficiency, this allows clients to benefit from a homogenised service and consistent points of contact for both currencies.

The renminbi has also been a key area of focus for Deutsche Bank, as it has become increasingly important for its partner banks and their clients. The bank has sought to expand its presence in Asia and has established project teams that have deployed a full range of renminbi cash management services. The project teams are also responsible for ensuring that Deutsche Bank has an ear to the ground with regards to regulation on behalf of its partners.

Looking ahead, Deutsche Bank will continue to provide the best-class customer service and invest in the functionality and ease of use of its products and solutions. This allows our partners to handle the latest developments in cash management, compete in what continues to be an increasingly challenging environment and to benefit from leveraging Deutsche Bank’s scale advantages and global footprint – in other words: helping our clients to be successful with their clients.  



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